Dude, Don't Tax My Wine!

We dodged a bullet the other week. More accurately, we dodged a tax, and by we, I mean wine drinkers, wine producers—maybe even wine country bystanders. When the governor signed the California budget on Feb. 20, it did not include his proposed tax increase on wine. It does include a lot of other taxes. Yes, the state is billions in arrears, and everyone's got to pony up their fair share. Why not wine drinkers, too? Sure, if a 640 percent increase fits your definition of "fair." That's a sin tax. To call it "luxury" tax is a two-fer of flattery and derision, and misleading because it was anything but progressive.

Proponents breezily billed the tax as a harmless "nickel a drink," or $1.48 up from 20 cents per gallon. Well, with sales tax hiked 1 cent, that $7 glass of wine already got tagged an extra 7 cents, never mind the nickel. What the real cost could have been, and what hard rain was to fall on the industry, was the subject of some debate. It boiled down to two scenarios:

1. It's the consumer's dime—or quarter or sawbuck. Excise tax is levied at the producer level. In the wine-distribution system, nobody stops to separate out the tax, so by the time it's passed on down the chain to the consumer, it could balloon into 50 cents. Ciao, Two Buck Chuck. While buyers of $100 cult Cab may brush off the small change, Johnny Chateau is not driving the industry as much as everyday supermarket wine. Magic price points thus breached, woe the would-be premium wine consumer who just can't spend more than $9.99 (yes, fancy pants, $9.99 is the "premium" category).

2. Chuck foots the bill. Actually, not likely—but small wineries don't have the clout of the big guys and complain of being squeezed by distributors who won't pay them a penny more. A 5,000-case family winery slapped with a $17,000 tax bill may have been forced to make cuts, meaning that cellar workers or tasting room staff lose their job, potentially furthering the downward spiral of the local economy.

What's the fuss if the tax is moot? Dread the return of the wine tax. The Wine Institute, the industry's advocacy group, warns the tax may return later this year when the legislature visits the 2009–2010 budget. History shows that when panicked lawmakers look around for something to beat the dough out of, wine is right behind tobacco. Watch the skies. Or write your representative.